People approaching retirement may take out protection policies to shore up their pension, Neil McCarthy has predicted.
Ahead of the changes to annuities in April, the sales and marketing director for protection portal LifeQuote said he expected to see more sales of term or whole-of-life insurance, including funeral plans.
He said: “When people choose drawdown as opposed to an annuity after the April 6th changes, there could be an increased demand for protection policies.
“People may look for alternative ways to ensure the surviving partner has a guaranteed lump sum to possibly provide a new source of funds for an income, or to pay for critical purchases such as funerals on their death in addition to what is likely to be an unknown rolled over pension fund.”
In its December 2014 review into the annuity market, the FCA revealed that 530,000 widows may have been left without an income because their husbands had not been told that payments would cease on their death by taking out a single life annuity.
Neil Adams, pensions specialist in the London office of Drewberry Insurance, said: “If a client has an adviser who is providing ongoing drawdown reviews, the client will be well informed to ensure the fund is not eroded irresponsibly. Therefore, the adviser is unlikely to recommend a life policy to cover that potential risk because the residual fund should be sufficient to provide a spouse’s income.
“If the individual in drawdown does not have an adviser then it is unlikely that they will consider that option themselves. So, although it sounds a good idea in principle, it is unlikely that drawdown will have an impact on life sales.”